ENTREPRENEURSHIP

UNIT-1
UNIT-1
Indian Industrial Environment-competence, Opportunities & Challenges.
Entrepreneurship & Economic growth. Small Scale Industry in India, Objectives,
Linkage among small, medium and heavy industries. Types of enterprises.

Topics to be covered

 General introduction to Entrepreneurship

 Indian Industrial Environment – Competence, Opportunities and challenges.
 Entrepreneurship and Economic growth.
 Small Scale Industry in India, Objectives
 Linkage among Small, medium and heavy industries
 Types and forms of enterprises.
Definition of an Entrepreneur:
Entrepreneur word is derived from French word entreprendre meaning "to
undertake".
The "Entrepreneur" means a person who organises and manages a
business undertaking assuming the risk for the sake of fulfillment of
some of his needs.

Entrepreneur is a person who isolates purchase and sales

Opportunities and exercises his intelligence and overcoming spirit to
utilise such opportunities to increase his economic power.
Entrepreneur provides the enterprise with resources.
According to Noah Webster, Entrepreneur is “One who
assumes the risk and management of business”. It does not
involve wages, rent or interest, routine human efforts (i.e.,
labor), use of land, provision of capital.

According to Higgins ‘Entrepreneurship is meant the

junctions of seeking investment and production
opportunities’.

“One who can manage a business, one who can organize people for
ongoing work”.

Entrepreneur is one who innovates, raises money,

assembles inputs, chooses managers, and sets the
organization going with his ability to identify them and
opportunities which others are not able to identify, and is
able to fulfill such economic opportunities.
- Joseph A Schumpeter
The true entrepreneur is one who is endowed with more
than average capacities in the task of organizing and
coordinating the various factors of production.
- Francis A Walker
Entrepreneur is one who always searches for change,
responding to it and exploits it as an opportunity.
Entrepreneurs have to learn to practice systematic
innovation which consists in the purposeful and
organized search for changes and in the systematic
analysis of the opportunities such changes might offer
scope for economic or social innovation.
- Peter Drucker
Entrepreneurs and entrepreneurship

Concept:
All human beings have an urge to exercise power over
other beings and objects. Degree may vary person to
person.

Entrepreneur is a person who isolates purchase and

sales opportunities and exercises his intelligence and
overcoming spirit to utilize such opportunities to increase
his economic power. He is a person who assumes the
risk and management of his business.
The representative-ness of human agencies which strive
for industrial development and are responsive to the
business incentives and motivation, is termed as
entrepreneurship.
Entrepreneur is the person who provides the Fourth
factor of production namely enterprise. The three factors
are Labor, land and capital. The fifth factor is Science
and technology.

The wholesome knowledge of business system will be

making an individual a successful entrepreneur.
 Types of Entrepreneurs:
Depending upon the level of willingness to create innovative ideas,
there can be the following types of entrepreneurs:
1. Innovative entrepreneurs: These entrepreneurs have the ability to think
newer, better and more economical ideas of business organisation and
management. They are the business leaders and contributors to the economic
development of a country. Inventions like the introduction of a small car
‘Nano’ by Ratan Tata, organised retailing by Kishore Biyani, making mobile
phones available to the common may by Anil Ambani are the works of
innovative entrepreneurs.
2. Imitating entrepreneurs: These entrepreneurs are people who
follow the path shown by innovative entrepreneurs. They imitate
innovative entrepreneurs because the environment in which they operate is
such that it does not permit them to have creative and innovative ideas on
their own. Such entrepreneurs are found in countries and situations marked
with weak industrial and institutional base which creates difficulties in
initiating innovative ideas. In our country also, a large number of such
entrepreneurs are found in every field of business activity and they fulfill
their need for achievement by imitating the ideas introduced by innovative
entrepreneurs. Development of small shopping complexes is the work of
imitating entrepreneurs. All the small car manufacturers now are the
imitating entrepreneurs.
3. Fabian entrepreneurs: The dictionary meaning of the term ‘fabian’ is
‘a person seeking victory by delay rather than by a decisive battle’.
Fabian entrepreneurs are those individuals who do not show initiative
in visualising and implementing new ideas and innovations wait for
some development which would motivate them to initiate unless there
is an imminent threat to their very existence.
4. Drone entrepreneurs: The dictionary meaning of the term ‘drone’ is ‘a
person who lives on the labor of others’. Drone entrepreneurs are
those individuals who are satisfied with the existing mode and speed
of business activity and show no inclination in gaining market
leadership. In other words, drone entrepreneurs are die-hard
conservatives and even ready to suffer the loss of business.
5. Social Entrepreneur: Social entrepreneurs drive social innovation and
transformation in various fields including education, health, human rights,
workers’ rights, environment and enterprise development. They undertake
poverty alleviation objectives with the zeal of an entrepreneur, business
practices and dare to overcome traditional practices and to innovate. Dr
Mohammed Yunus of Bangladesh who started Gramin Bank is a case of
social entrepreneur.
Functions of an entrepreneur:-
1) Innovation
2) Risk-taking
3) Organization and management of business so as to have
leadership and control over it.

In developing or in a developed country, the state has to

assume the role of protection and promoter of small
enterprises by way of 1) Allotment of land/factory sheds at
low cost by the state 2) concessional finance 3) tax
exemptions 4) priority in government purchases 5) exclusive
reservation of certain products for manufacturing.

Entrepreneur distinguished from other functionaries:-

1. Inventor looses to entrepreneur in the sense that
inventor invents but cannot exploit economically.
2. Entrepreneur and Speculators - Resembles but differs in
orginasing and introducing innovations.
3. Entr e p r e n e ur and i nv e nto r Entrepreneur exploits
the inventions commercially into a business.
4. Entrepreneur and Manager
Entrepreneur and other factors of production such as rent of
land, wages of labour and interest for capital will always be
positive., but the reward of the entrepreneur are profit can
sometimes be negative depending upon the degree/grade of
entrepreneurial talents
Entrepreneur (Self-employed) Manager (Paid employee)
You are completely You have to work according to the
independent and free to directions of the employer.
work according to your
wishes.
You are entitled for the whole profit you You get your fixed salary or at
make. Your efforts are rewarded the most a small amount of
proportionately. bonus as reward for your work.
There is great scope of creativity. You There is always lack of
can introduce innovation and changes to incentives so there is generally
improve your earnings. lack of enthusiasm.
As your efforts are quickly rewarded There is little or almost no
you feel encouraged to work with scope for creativity. Rather the
enthusiasm. work is generally of a
monotonous nature.
In self-employment there is full Comparatively there is less
responsibility. Whatever happens has to responsibility.
be borne by the self-employed person.
There are risks of less income or loss at There is no risk of less income as
times. any paid employee is paid fixed
salary.
In many casesself-employed persons are not For paid-employment, generaly one
qualified or even illiterate has to be qualified or skil ed in
one or the other trade.
Initiative, capital and bard work is needed There is no need of money and once
to make self- employment a success. appointed, there is no compulsion to
take initiative or work very hard.
A self-employed person gives jobs to It is difficult to get paid
other people and thus helps the nation employment and there is no scope
in solving the unemployment problem. of his giving employment to
others.
Qualities of Entrepreneur:—
1. Capacity to assume risks and possessing self confidence.
2. Technological knowledge, alertness to new opportunities, willingness to accept
change and ability to imitate
3. Ability to marshal resources — ability to build orgnisation is perhaps the most precious
of all entrepreneurial skills.
4. Ability to organisation and administration.
The entrepreneur must have special quality of judgment, perseverance and knowledge
of the world as well as of business. He is called upon to estimate, with tolerable
accuracy the importance of specific product, the probable amount of demand and the
means of its production; at another, buy or order the raw material, collect labourers,
find consumer and give at all times a rigid attention to order and economy.

Indian industrial environment

India is a developing economy and it is a well known fact that in India, agriculture
sector is having a lot of importance. Eventhough neglected during British rule,
in_the post independence era, due to the successful implementation of five plans,
there has been significant progress in industrial sector in India.
Following are the economic reforms based on the Indian Industrial Environment,
(1)Liberalization: Liberalization is the process of removing the economy from the
various regulatory and control mechanisms of the state and of giving greater
freedom to enterprise.
Liberalization is the context of economic reforms in India, refers to the relaxation
of earlier government restrictions, usually in the areas of social and economic
policies. It can be understood as changing the economic environment from
restrictionist regime into a free regime. It also consists of allowing private sector to
run those activities reserved for public sector and relaxing all rules and restrictions
relating to the growth of private sector.
The important elements of liberalization are,
(i) Industrial Licensing Policy : As a part of liberalization, industrial licensing was
abolished for all industries except for 18 strategic industries separate sentence
starting with presently industrial licensing is compulsory for only 5 industries.
At present, only 3 industries namely, atomic energy, specified minerals relating to
atomic energy and rail transport are exclusively reserved for public sector. In
projects where imported capital goods and equipment are necessary atomic
clearance is assured, subject to availability of foreign exchange.
(ii) Foreign Investment Policies : As a part of liberalization, it was decided to
approve foreign direct investment upto 51°/o equity in high priority industries
requiring large investment and advanced technology. At present Foreign Direct
Investment(FDI) is approved upto 100% of equity in more sectors subject
applicabfe rules and regulations. However, FD is are prohibited in retail trading,
atomic energy, lottery business and gambling and betting.
(iii) Foreign Technology : In order to inject technological dynamism into
Indian industry and make vibrant, government has provided for automatic approval
of foreign technology, collaboration agreements in high priority industries. No
permission from government agencies is necessary for employing technicians,
foreign testing of indigenously developed technologies.
(lv) Public Sector Policy : In view of the failure of public sector in India, efforts
are being made i n the direction of revival, rehabilitation_and take over of sick
units by private sector. Sick and loss incurring public sector units are referred to
the board for Industrial and Financial Reconstruction (BIFR) for advice on
their rehabilitation•and revival. Disinvestment programme was initiated and a
part of the government shareholding in public sector enterprises was offered to
mutua1 fund organizations, general public, financial institutions and workers.
Through all the above measures, the government has indicated its intension of
inviting a greater degree. of private participation in public sector units.
Narasimham Committee Report recommended a re-organization of the public sector
banks. Solving the problems·of bad debts and freedom of operations of foreign
bank.
(v) MRTP Act: In the pre-liberalization era, there were a number of restrictions on
private investment, expansion of private sector units through the provisions of
MRTP Act. As a part of liberalization, various provisions of MRTP Act were
scrapped providing more freedom· to private enterprises in matters of expansion and
diversification of their units. However, MRTP Act still aims at controlling unfair and
restrictive business (trade) practices.
(2) Globalization: Globalization is the term used to describe the process of
removal of restrictions on foreign trade investment, innovations in
communications and transport system. There changes have encouraged nation
to reduce the high level of protection between countries and to adopt policies to
liberalize their economic in order to increase their volume of trade.

The following are various conditions of globalization in India,

(i) Business Freedom: It is felt that economic liberalization is an important

prerequisite of globalization: If business people enjoy more freedom without
unnecessary government restrictions like import restrictions, restrictions on
foreign capital and foreign investment, etc., there can be speedy globalization.

(H) lnfrastructural Facilities : Globalization in developing countries like India

depends upon the availability of improved/developed infrastructural facilities
like water, transport, electricity, finance, etc.
(iH) Government Support : It is felt in some quarters that unnecessary/undue
government interference is an obstacle to globalization. However the fact is that
in countries like India, rapid globalization can take place with active
encourage m e n t a nd support of government like procedual reforms,
development of common infrastructural facilities, financial market reforms,
research a n d development s u p p o r t e t c
(iv) Resources : Tt,e availability of various types of resources which a business
possess influences globalization. Firms which are resourceful, with abundant
finances, modern technology, R&D capabilities, managerial expertise, good brand
and company of image, quality human resources can be very successful and ahead international
business and globalization.
(v) Competitiveness : The competitive edge or advantage which a business firm enjoys
over its competitors is a factor that determines the success of globalization. Factors like low
cost and lower price superior product quality, product differentiation, technological superiority,
effective/good after sales service, good marketing strength are the crucial factors that influence
globalization.

(vi) Orientation : Success in any area depends upon right orientation and attitudes.
Likewise globalization anywhere, including in India depends on global or orientation among
business firms and appropriate globalization strategies.
(3) Disinvestment / Privatization : The term "Disinvestment" is used more often than
"Privatization" in India. Disinvestment means control of the share of the government to the
level where there is no change in control that results in the transfer of management
Privatization is define as providing ownership to private people/enterprise in public or
government owned organization.
Since the process of disinvestment was started_in India (1991), it can be consists of two types
such as,
(i) Token Disinvestment : Disinvestment started in India with a high political caution in a
symbolic way known as the "token" disinvestment, The general policy was,to sell the
shares of PSU's maximum upto 49%. This phase of disinvestment though brought some
extra funds to the government.
(ii) Strategic Disinvestment : The Government classifying the PSUs into 'strategic'
and 'non strategic announced in_March,1999 that it wi11 generally reduce its stake (share
holding) in the ‘non-strategic’ Public Sector Enterprises (PSEs) to 26% or below if
necessary ,and in the 'strategic' PSEs (i.e., anus and ammunition , atomic energy and
related activities and railways) it will retain its majority holding.The essence of the strategic
disinvestment was,
The minimum shares to be divested will be 51%.
The wholesale sale of shares will be done to a 'strategic partner' having international class
experience and expertise in the sector.

Role of Indian industrial sector.

The importance/role of industrial sector in Indian Economy can be understood with
the following,
(1) Share of Industries in the GDP : The share of industries in GDP of India
has been increasing steadily, with it increasing from 13.3% in 1950-51 to 24.4%
in 2001-02 and further to 26% in 2008 (i.e., 1993-94 prices).
(2) Increase in Employment of Opportunities : Industrial sector in India is
steadily contributing to an increase in employment opportunities. The working
population in Industrial sector was 10.7% in 1950-51 and it further increased to
17.56% in 200809.
(3) Share of Industrial Sector in National Income : The share of Industrial
sector in the National Income of India was only 14.8% in 1950-51, but it has
increased to 25.9% in 2008-09.
(4) Growth of Large Scale Industries : The tremendous growth of Industrial
sector during the last 60 years in the form of establishment and development of
basic and capital goods industries like Iron and Steel, Coal, Cement, Heavy
chemicals, etc., has created a sound basis for rapid Economic Development in the
country.
(5) Growth in the Production of Consumer Durables : In recent times due to
liberalization, rapid industrialization has contributed to the healthy growth of
consumer durable goods sector. The annual growth rate of consumer durable
goods, which was only 14.4% during 1981-85 has increased to 16.9% during
1985-90.
(6) Industrial Policy, 1991 : The New Industrial Policy, 1991 and the policy
of liberalization, by reducing the role of public sector and enhancing the role of
private sector, are contributing to rapid industrialization
Different factors influencing the economical status of a country:
The economy is defined as a social domain that emphasizes the practices,
discourses, and material expressions associated with the production, use and
management of resources.
An economy of a nation is a system of organizations and institutions that either
facilitate or play a role in the production and distribution of goods and services
in a society. Economies determine how resources are distributed among
members of a society, they determine the value of goods or services and they
even determine what sort of things can be traded or bartered for those services
and goods.
A nations general economic health can be measured by looking at that country's
economic growth and development,
Following are some of the important factors that affect the economic status of a
nation,
(1) Human Resource : It refers to one of the most important determinant of
economic growth of a country. The quality and quantity of available human
resource can directly affect the growth of an economy.
The quality of human resource is dependent on its skills, creative abilities,
training, and education. If the human resource of a country is well skilled and
trained then the output would also be of high quality.
(2) NaturalResources : Affect the economic growth of a country to a large extent.
Natural resources involve resources that are produced by nature either on the
land or beneath the land. The resources on land include plants, water resources
and landscape.
The resources beneath the land or underground resources include oil, natural gas,
metals, non-metals, and minerals. The natural resources of a country depend on
the climatic and environmental conditions. Countries having plenty of natural
resources enjoy good growth than countries with small amount of natural
resources.
(3) CapitalFormation : It involves land, building, machinery, power,
transportation, and medium of communication. Producing and acquiring all
these manmade products is termed as capital formation. Capital formation
increases the availability of capital per worker, which further increases
capital/labour ratio. Consequently, the productivity Of labour increases, which
ultimately results in the increase in output and growth of the economy.
(4) TechnologicalDevelopment : It refers to one of the important factors that
affect the growth of an economy. Technology involves application of scientific
methods and production techniques. In other words, technology can be defined as
nature and type of technical instruments used by a certain amount of labour.
Technological development helps in increasing productivity with the limited
amount of resources. Countries that have worked in the field of technological
development grow rapidly as compared to countries that have less focus on
 technological development. The selection of right technology also plays an role for
the growth of an economy, On the contrary, an inappropriate technology- results in
high cost of production.
(5) Socialand Political Factors : Play a crucial role in economic growth of a
country. Social factors involve customs, traditions, values and beliefs, which
contribute to the growth of an economy to a considerable extent.
Example : A society with conventional beliefs and superstitions resists the
adoption Of modern ways of living. In such a case, achieving becomes difficult.
Apart from this, Political factors, such as participation of government in
formulating and implementing various policies, havc a major part in economic
growth,
(6)Corruption : Corruption is rampant in developing countries at various levels and it
operates as a negative factor in their growth process. Until and unless these countries root-
out corruption in their administrative system, it is most natural that the capitalists, traders
and other powerful economic classes will continue to exploit national resources in their
personal interests.

Competencies of lndian industrial environment:

The competencies of Indian Industrial Environment are,
(1) Theory of the Firm : A firm is an organization that uses resources to produce goods or
services with the aim of generating profit.An industry consists of a group of firms that produce
similar goods or services.The primary objective for most firms is to maximize profits,to
increase their market power and long-term sustainability By studying the objective, one can
find out the equilibrium position of a firm i.e balancing supply and demand level at a certain
price .All these conditions therefore, become a part and in fact the starting point, of the study of
industrial economics.
(2) Cost Analysis and Production Function : Production is the activity in which a firm is
engaged.The nature of production is the process of converting inputs (resources) into outputs
(goods and services). To achieve optimal production, to analyze the marginal product of each
input, and to achieve technical efficiency various resources be combined to get optimum results.
Again, production involves cost. The various concepts of cost are
fixed,variable,total,averge,marginal. All these concepts are relevant in analyzing costs. Cost
analysis and production function combinly achieve Cost Minimization,Profit Maximization.
(3) Profit Analysis : Profits form by far the most important goal of a firm. Various theories of
profits, measurement of profits and concepts regarding the reasonableness of profits deserve a
scrutiny by industrial economics.
(4) Macro-economic Environment : A firm has to operate in the midst of a large number of
firms from numerous industries. How does the economy as a whole function? How are levels of
income and employment determined? Does the economic activity remain stable or does it
fluctuate? Do prices remain stable? If not, what effects would follow price fluctuations? All
questions like these belong to macro-economic analysis and need an attention of industrial
economics, since they form the economic environment of a firm.
(5) Economic Policy and Planning:All modern economics are mixed economics where the
state intervenes in the decision making process of individuals.This is done with a view of
achieving certain objectives.Major policy instruments used by the state and the nature of
planning adopted,also form part of economic environment in which a firm operates.This
therefore become a part of the study of industrial economics.
(6) Information and Decision Making:Industrial economics rest upon a descriptive part of
information regarding industrial and commercial organization of the country concerned,i.e.,in
our case India.This part includes the development and the problems of Indian Industries the
needs of Indian industries etc. the other analytical part concerns the business policy and
decision making.

Opportunities of Indian Industrial Environment

While India struggles with a burgeoning population of educated youth,the rest of the world
especially developed countries,faces a shortage of working age people,caused largely by lower
birth rates and an ageing working population.While the requirements for skilled workers in
these markets is increasing in line with economic growth,the availability of skilled people
simply isn’t keeping pace.In professions like IT services,medicine and education,the problems
are already beginning to be felt.
For the developed world ,these shortages present a huge challenge,as they can slow down
economic growth.And they can have other adverse effects.For instance,
(1)Demand and supply:Demand supply imbalances causes by workforce shortage will increase
wage rates,reducing the competitiveness of these countries.
(2)Working population:Pressure on the existing social security and pension systems will
increase as a significantly large percentage of retired population has to be supported by a
smaller percentage of working population.
Based on shortage and slow growth relating to other countries,the various Opportunities of
Indian Industrial Environment are,
(1)Revenue:The generation of revenue from the various source enhance the drastic change in
the industrial sector.
(2)Importing Customers:The second opportunity,importing customersinto India,has the
potential of generating billion of revenues and creating million jobs(direct and indirect).Purely
from an economic perspective,the fundamentals for this business and strongly in India’s favour.
(3)Multi Lateral Manufacturing : India is available with different multi skilled basis where
manufacturing possibly were enhance the opportunity to get less cost of production and high
quality goods.
 (4)Skilled Employees : Labour and employees are the important components of any industries.
India is being one the player who develops skilled employees and labour to utilize effectively.

Challenges faced by Indian Industrial Environment

The various challenges faced by the Indian industrial environment are,
• (1) Unbalanced Industrial Structure.: Despite all efforts India has not been able to attain
self sufficiency in respect of industrial material. India is still dependent on foreign imports for
transport equipments, machineries (electrical and non-electrical), iron and steel, paper,
chemicals and fertilisers, plastic material etc. In the total industrial production consumer goods
contribute 38 percent. In newly industrialised countries like Singapore, South Korea and
Malaysia this percentag,e is 52, 29 and 28 respectively. This shows that import substitution is
Still a distant goal for the country.
(2)Low Demand : There is low demand for industrial products in the country due to low
consumption level weak purchasing power and poor standard of living. The domestic market is
chronically underdeveloped through lack of enthusiasm generated by the middle and upper
class segment who do not wish to raise their standard and improve their living conditions.
(3)Regional Concentration :In India, most of the industries are located in few selected areas
leaving out vast expanse of the country devoid of industrial establishments.·Most of the
industries are located in and around metropolitan cities like Mumbai,. Kolkata, Delhi etc. This
has not only created regional imblance and regional disparity but has encouraged fissiparous
tendency including unrest violence and terrorism.
(4)Loss in Public Sector Industries : Owing to focus on socialistic pattern of development
investment under public sector industries increased phenomenally during early five year plans.
But due to defective policy of the government characterised by redtops and inefficiency and
strained labour-management relations most of these public sector enterprises are running in
loss. Ever year the government has to incur huge, expenditure to cover up this loss and meet
obligations of paying wages to the employees . This hardly leaves surplus money to go for new
industrial ventures and launch schemes or social development. To avoid this burden on
exchequer the government is promoting privatisation and disinvestment of shares of public
sector undertakings.This goes against the Peruvian model of development initiated during the
'fifties of the last century.
(5) Industrial Sickness : In the private industrial sector a growing number of industrial units
are becoming sick. Wide spread sickness has indeed, become a major problem of this sector.
The causal. factors for this sickness are,
(i)Deficient management.
(ii)Under-utilisation of capacity due to shortage of raw materials, coal and power and transport.
(iii)Obsolete machinery, equipment and production techniques.
(iv)Uneconomical scale of production.
(v)Faulty choice of products and processes.
(vi)Difficulties in selling the products.
(vii)Diversion of funds to new units under same ownership.
(viii)Conflict between different interest groups among the owners.
In order to provide a focal point for the revival of sick units, the Industrial Reconstruction
Corporation was reconstituted in 1985 as the Industrial Reconstionctruction Bank.It is now the
-
principal agency for reconstruction and rehabilitation of sick units.
The Central Government set up in 1986 two Funds, the Textile Modernisation Fund
(TMF) and the Jute Modernisation Fund (JMF) to provide assistance on concessional terms to
healthy as well as sick units for modernisation. These two Funds are being administered by the
IDBI and the IFCI respectively.. There is also a need
'- • . .
for constant . . .

Monitoring and deterrent penalties to the parties responsible for sickness..

(6)Lack of Infrastructure : An inadequate infrastructure facility is another major problem
faced by the Indian industries. Energy crisis has a great bearing on the industrial development
and production, Although the installed capacity of electricity increased from 66.08 million km
in 1990-91 to 85.79 million km in 1995-97 but it is much short of the actual demand.
It leads to power cut and rostering which hampers the industrial production. Most of the State
Electricity Boards are running in loss and are in deplorable condition. Rail transport is
overburdened while road transport is plagued With many problems.
Even national highways in many places are in bad shape. Telecommunication facilities are
mainly confined to big cities.
(7)lmproper location Base : Industrial locations in several instances were established Without
reference to cost-effective points. Each state clamors for the establishment of major industries in
the public sector within its boundaries, and the location, decisions are often politically
motivated.
(8)Lack of Capital : Indian industrial development is facing acuate shortage of capital. The
short-term and long-term loans from international agencies like World Bank and Asian
Development Bank etc., have done more harm to the economy than taking it out from the
crisis. A lot of foreign exchange is being utilised in the payment of these loans.
The situation becomes acute when fresh loans are taken to pay installmentsof the old loans.Due
to liberalization the foreign exchange reserve position has improved in recent years and flow of
foreign capital has started in industrial sector.These foreign investors also do not like to invest
in such industries which require large capital, need long gestation period and where recovery
slow or more risk is involved. Instead of depending on foreign capital we have to place more
reliance on indigenous capital with greater emphasis on the development of priority industries.
(9)Shortage of Industrial Raw Material ·: Indian Agricore, the major source of industrial
raw material,is still dependent on the monsoon. Natural calamities like drought, famine, flood
etc badly affect agricultural production as well the supply of industrial raw material. Failure of
monsoon even affects the purchasing power of the people and also the demand for industrial
products. It sometimes creates glut in the market and industrial plumpness. Cement industry is
recently facing such crisis.
Drought like situation even affects hydel generation leading to energy crisis, more pressure on
railways to transport coal and on thermal power sector for higher
output. This leads to a chain of crises which have interlinking effect.
(10)Higher cost of Production and Low Quality of Goods : Indian industries mostly survive
on home demands. These have been given a number of concessions and even protection from
foreign industries. Here most of the work is done by hand on old and obsolete machines.
This increases the cost of production and brings down the quality of products produced. Since
these industries have virtual monopoly they hardly bother to improve their quality. Public sector
units, under direct control of the government, frequently increase the prices which provide
golden opportunity to private industrialists also to increase the prices. Our industrial products
are not able to make wide market abroad.
The low purchasing power of the people even reduces home demand. The situation is likely to
change during globalisation when there is apprehension of wide spread closure of these
industries due to stiff competition offered by multinational companies. This is also not good for
the country and the Indian industries.
(11) License Policy : The license policy approving the site, capacity, type and expansion of
indusries is a typical example of excessive state interference and red tapes which hinder the
industrial development. Recently some examples of political vendetta have come to surface
whereby central government over delayed the approval of industries from such states where
hostile political party is in power. Ministers and influential political leaders and pressurising
industrialist to install industries in their electoral area so as to approve their licenses. With the
introduction of liberalisation policy many of the shortcomings of the license policy have been
removed.
ENTREPRENEURSHIP AND IT’S CHARACTERISTICS
"Entrepreneurship is the function of seeking investment and production opportunity,
organizing an enterprise to undertake a new production process, raising capital, arranging
labour and raw materials, finding a site, introducing a new technique and commodities,
discovering new soutÇes for the enterprise."

According to A.II.Cole, "Entrepreneurship is the purposeful activity of an individual or a

group of associated individuals, undertaken to initiate, maintain or increase profit by
production or distribution of economic goods and services".

According to Schumpeter, "Entrepreneurship is based on purposeful and systematic

innovation. It included not only the independent businessman but also company directors
and managers who actually carry out innovative functions".
 The following are the main characteristic of an entrepreneur,
(1) The Quality of Managerial Skills and Leadership : Hoselitz feels that the managerial
skills and leadership are the most important aspects of entrepreneurship. Financial skills are
secondary. According to Hoselitz, when a person wants to become an industrial
entrepreneur he must have more drive to earn profits and gain wealth. An individual should
have the ability to lead and manage.
Hoselitz has found that there are three types of business leadership, namely merchant
money lenders, managers and entrepreneurs. The function of money lending group is
market-oriented, that of the second is authority-oriented while the third group has in
addition to the above a production-orientation.
(2) A Function of a Peer Group : According to Young, "the entrepreneurial characteristics are
found in groups and clusters" which may qualify themselves as entrepreneurial class.
Entrepreneurial activity may be generated by the particular family background, experience as
a member of certain groups and as a reflection of general values.
Through the Thematic Appreciation Test (TAT) on a group of entrepreneurs, Youngers
found that the tendency to describe the situation as a problem to be solved, an awareness of
pragmatic effort required, confidence in their own ability to solve the problem and a tendency
to take the viewpoint of each individual in turn and analyze the situation as he might see it
before suggesting an outcome.
(3)Innovation : Schumpeter, says that entrepreneurship is a creative activity. Basically an
entrepreneur an innovator Who introduces something new into the economy.
It ts also a method of production not yet applied in the particular branch of consumers are not
yet familiar or a new souce of raw material or a new market hitherto unexploited or a new
combination of means of production. The primary function of an entrepreneur is to anticipate
the potentially profitable opportunity and tries to exploit it. Innovation involves problem
solving and the entrepreneur is a problem solver
(4)An Urge to Achieve : According to McCleIland, an urge to achieve is tendency to strive success in
situations involving an evaluation of one's performance in relation to some standard excellence. A person
who has high need for achievement is morelikely to succeed as entrepreneurs.
(5)Organizing Capacity : The organizing capacity is the most critical skill required for industrial
development. This skill refers to the ability to multiply oneself by effectively delegating responsibility
to others.
According to Harbison, an entrepreneur should possess the managerial skills and creativity. He
considers creation of new oragnization as innovation and at the same time stresses the
organization building ability.
(6)Influence of Social, Political and Economic Structure : According to Kunkel, the marginelity does not
generate entrepreneurial class and there must be some additional factors at work. Generally
entrepreneurs are not spread over in the population. The people belonging to (religious, ethnic, migrated,
displaced elities) have provided most of the entrepreneurial talent. But all the minorities are not
important sources of entrepreneurship.
(7)Risk Taking : It is the important feature for an entrepreneurship which impulses assuming the
responsibility for loss that may occur due to unforeseen contingencies of the future. Entrepreneur has to
take the decisions under uncertainty and thus they are willing to take risk.
Elements of entrepreneurship:
Two basic elements of entrepreneurship are,
(1)Innovation : Innovation to an entrepreneur is like what water is to a fish. Innovation means either
doing something new or unique from the existing products or services Entrepreneurs need to be alert
and updated about the changing tastes and preferences of the customers. Entrepreneurs may or may not
be inventors of new products or services, but they are competent enough to make use of the existing
products, simply re-innovate them and sell at lower prices.
Example : The latest example of innovation is mango-fruity, which is now made available in
small cartons instead of big bottles. These small cartons are disposable in nature. Once used
they can be disposed off and can be handled easily.
Similarly, Lipton also came up with an innovative idea and a product called as ’pudiyas'
where in tea was made available in small quantity especially for the rural
customers.Thus, it can be inferred that the entrepreneurs need to produce an innovative
products as per the needs of customers.
(2)Risk Bearing : Flying on sky is not an easy task. One needs to put in extra efforts to reach that
position. In other words to get higher returns one Needs to take higher risk. Being an entrepreneur itself
is a risky task. The organization or the enterprise may be enjoying profits or suffering loss because
of cut-throat competition, changing tastes and preferences of the customers, scarcity of essential
commodities and so on. An entrepreneur must be capable enough to predict the lèvels of risk involved.
He must be a risktaker and not a risk avoider. It is his riskbearing ability which motivates him to take
'n' numbers of ventures even if few of them fail.

Advantages and disadvantages of entrepreneurship:

Advantages of entrepreneurship are,
(1) Set their Own Schedules : There is no fixed working hours rule for entrepreneurs as they
do not report to anyone. They work according to their own requirements and set up their own
target.
(2) Entrepreneurs are their Own Bosses : Nobody dictates entrepreneurs as to what to do?
They in fact need not report to anyone and are their own boss. Hence, they can be called the
supreme masters of their own destinies.
(3) Entrepreneurship is Exciting and Rewarding : For those who enjoy taking up challenges
and rising in spite of all odds, this is the right path to tread. Everyday entrepreneurs are faced
with a new challenge or risk, carving their way through them is the spurring force and often a
component of the reward for them. The resultant excitement and adrenaline rush is generated
as, they are masters of their own fate and the turn of fate is determined by their own actions
and decisions.
 (4) Sense of Accomplishment : The feeling of achievement, once the idea or concept is
successful is highly enthralling for the entrepreneur because, he is solely responsible for its
introduction and the resultant success.
(5) Freedom to Make their Own Decisions : The desire to be free from all kinds of rule is a
driving force behind contemporary entrepreneurs. Most of the attempts at entrepreneurship
were a result of frustration caused due to rigid bureaucratic Systems, even when they
possessed sincere commitment to work and the desire to make a difference.

Disadvantages of entrepreneurship are,

(1) Pressure of Knowing that the Business could Fall : entrepreneurhip involves a lot of risk. The
knowledge of this fact generates a lot of pressure on the entrepreneurs because, if these risks get
realized, they may have to go out of business or even incur huge losses.
(2) Emotional Strain and High Levels of Stress : According Boyd and Gurnpert, stress is caused due
to factors such as loneliness, immersion in business, people generated problems and the need to achieve.
Emotional stress and strain is also due to existent gaps between a person's expectation and his ability to
meet demands, as well as gaps between his personality and expectations. Entrepreneurs in order to
achieve sustainable success should deal with these factors, with utmost urgency.
(3)Involves Long Hours and Hard Work : Unlike regular employment, where the number of hours is
fixed and where the job is bundled with benefits, such as paid holidays, provident fund, gratuity etc., an
entrepreneur is literally married to his business and is devoid of such benefits. As achievement brings
satisfaction, he continues to work long hours leaving almost no time for recreation, family, friends and
other forms of social activity.
(4)Uncertainty of Income : In the initial stages, the entrepreneur may have to thrive on earlier savings as,
almost negligible or no income is generated in this period. But once income starts flowing in, this may
also be not assured as the income from one month may be utilized to recover the losses of the next
month.
(5)Willing to do Everything Connected with the Business : This type of behavior results from several
factors such as, wish to achieve, an overbearing need for control, sense of distrust, a perfectionist
attitude and an overriding desire for success. At times, entrepreneurs in their passion for the success of
their venture, operate under extreme conditions of stress.
Entrepreneurship and Economic growth:

Basically the growth of entrepreneurship depends upon the economic history of a

country. On the basis of India's economic history, the growth of entrepreneurship is
being divided into the periods,
(1) Pre-independence Period : Entrepreneurship in India can be witnessed back in
the Vedic civilization around B.C 2000-1500, where in Aryans used to practise metal
handicrafts. It can be inferred that handicrafts entrepreneurship in India is as old as
the human civilization and was nourished by the craftsmen as one of their duties
towards the society. Prior to the British' entry in India, the village was being
considered for the economic system, as the Indian towns were distant from the
common life of the people.In the vedic civilization the society was being classified
into various categories as farmers, artisans and religious priests. Most of the artisans
were considered as slaves. This compressed system of village community protected
the artisans from the external. competition and hence, there was no localization of
handcrafts industry in the ancient period.
Indian craftsmanship was characterized by perfect art, durability and were attractive
in nature. Few well-known products of the pre-independence period were as follows,

(i) Corah : Produced in Bengal.

(ii) Chintzes : Produced in Lucknow.
(iii) Dupattas and Dhotis : Produced in Ahmedabad.
(iv) Silk-bordered cloths : Produced in Nagpur.
(v) Shawls : Produced in Kashmir,
(vi) Metal Wares : Produced in Banaras.
Thus, in the 17 th century and in the beginning of the 18 th century India was considered
as the golden eagle due to handicrafts industry.
DECLINE OF THE HANDICRAFTS INDUSTRY
Primarily Indian handicraft industry was considered as cottage and small sector
industry which witnessed a great fall due to the following criteria,
(i) Dispersion of the Indian Royal Courts, who supported the handicraft industry.
(ii)Indifferent attitude of the British colonial governments regarding Indian handicraft
industry.
(iii)High excise duty on Indian imports from England.

(iv)Large-scale production of British goods at lower costs resulted in reduced levels

of competition among Indian handicrafts,
(v) Enhanced transportation facility resulted in the availability of British goods
everywhere, even to the far off places.
(vi)Changing tastes and habits of the Indians,
(vii)Consistency of the Indian craftsmen to adapt changes according to the changing
tastes and preferences of the people.
In the year 1677, the English East India Company gave a contract to Manjee Dhanjee to
build the first large gun-powder-mill in Bombay. In 1852 a Parsis foreman from the gun
factory started the steel industry. Thus, it is evident from these facts that the English
East India Company played a very significant role in the progress of entrepreneurship in
India.
The second half of the nineteenth century witnessed great evolution of entrepreneurs.
Failures were experienced by the Europeans in establishing factories in India before
1850. Initially, Parsis were the founders of manufacturing entrepreneurs in India.
Ranchodlal Chotalal, a Nagar Brahman, was the first Indian who wanted to start the
textile industry on modern factory lines in the year 1847, but unfortunately could not
succeed. He made second attempt in which has was successful in establishing a textile
mill in 1861 at Ahmedabad. By the time Ranchodlal Chotalal could establish his
textile mill, Cowasjee Nanabhoy Davar of Bombay followed by Nawsosjee, Wadia,
had already established the first cotton textile unit in 1854 and in 1880 respectively.
Upto 1915, Parsis contributed largely towards the growth of entrepreneurship.

WAVES IN ENTREPRENEURSHIP
Entrepreneurship in the pre-independence period basically belonged to two waves. In
the first wave except Parsis rest of all were from non-commercial communities. Parsis
outstanded the Jains and Vaishyas of Ahmedabad and Baroda in the entrepreneurial
activity in the 19 th century mainly due to two reasons.
(i) Due to the enhanced business climate in the country, which resulted in guaranteed
immediate returns on investments.
(ii) Due to the traditional belief of practising commercial entrepreneurship rather than
industrial entrepreneurship.
The Swadeshi movement laid greater emphasis on the native goods and industries,
which helped in developing nationalism all over the country. The effect was so strong
that Jamshedji Tata named his first mill as “swadeshi Mill". This swadeshi spirit was
propagating throughout the country like catching of fire in the forest. It was so
strongly supported that Krishna mills in its advertisement of tribune of April 13 made
the following appeal.
Our concern if financed by native capital and is under native management throughout.
The second wave, of entrepreneurship. in India started after the First World War There
exist many criteria for this. The Indian government accepted the 'discriminating
protection to few industries, even making it compulsory that the industries which are
enjoying the benefits of discriminating protection need to register themselves in India
with a capital in terms of rupees and have few Indian directors. This was greatly
beneficial and in favour of Indians. The Europeans were unsuccessful in controlling the
protectionist policies to their interests.

(2) post-independence Period : Post-independence period i.e., after 1947 India

regained its independence on 15th August 1947-after long years of colonial rule.
India took a long sigh of political relief in 1947 and it tried to achieve balanced
regional development. Therefore, the first industrial policy was formulated in the
year 1948 which is being reviewed since then from time to time on regular basis.
The government of India, since its inception has always been emphasizing on
promoting, assisting and developing industries nationally. The government of India
also identified the potential role played by the private sector in the industrial
development. The following are the three significant measures taken up in the
industrial resolution by the Indian government,
(i) To maintain a proper economic concentration of power among private sector and
public sector.
(ii) To fasten the pace of industrialization through propagating entrepreneurship from
the existing centres to other cities, towns and villages.
(iii) To disseminate the entrepreneurship acumen focused on certain dominant
communities to the industrially competent masses of different social strata.
In order to achieve these general objectives, the government has laid emphasis on
the development of small-scale industries in the country. Since, the third fiveyear
plan government has been, providing various incentives and concessions like
capital, technical know-how, markets and land to the potential entrepreneurs to
develop and start industries in backward regions to achieve balanced regional
development. This was in fact one of the major steps taken by the government to
encourage people of different social strata to enter into small-scale manufacturing
field.
It can be summarized that before 1850, the manufacturing entrepreneurship was
lying dormant in artisans. The artisan entrepreneurship was not able to prosper and
progress due to insufficient infrastructural facilities and indifferent attitude of British
but it was because of the efforts of English East India Company, the Managing
Agency Houses and other different socio-political movements like Swadeshi and many
more Provided one way or the other for the evolution and development of
manufacturing entrepreneurship after 1850 onwards.
The entrepreneurial growth was increase significantly after the Second World
War and has lead to a great increase in the number of entrepreneurs. A drastic
increase was viable during the third five-year plan period but the entrepreneurs did
not have the entrepreneurial ability.
Role of entrepreneurs in economic growth of economy:
Economic development of a nation refers to an increase in the real per capital income
over a long period of time. Capital formation refers to the process of building up the
capital stock of a country through the accumulation of physical assets (like machinery,
buildings, and infrastructure) and human capital (skills and education). According to
Adam Smith, the major determinant of economic development is the rate with which
the capital is formed.
One the major hurdles in the achievement of economic development was found to
capability people to save more and invest more in any country. According to him, the
saving ability of the people is governed by enhanced productivity Which can be
obtained by the division of labours based on their skills and efficiencies. Adam Smith,
considers every individual to his/her own judge with regards to one's own interest. He
says each individual is guided by an hand' in accomplishing their goals. He follows
the policy of Laissez-faire in economic affairs.
Economic development is considered as automatic and self-regulated. Therefore, the
classical economists were possessing an indifferent attitude towards the role of
entrepreneurship in economic development of the country. This can be rightly stated as
-The firm is a shadowy entity-and entrepreneur even shadower or atleast is shady when
he is not shadowy".
 But, from the economic history of developed countries such as USA, USSR and Japan.
It has been witnessed that entrepreneurship played a very important role in their
economic development. In otherwords, economy is an effect for which
entrepreneurship is the cause.
In order to achieve the goal of economic development it is essential to foster
entrepreneurship both qualitatively and quantitatively. There exists only few
enthusiastic and active entrepreneurs who can completely exploit the country's potential
but unutilized resources such as labour, capital and technology.
Several economists have proposed different roles for entrepreneurs as,
(1)Schumpeter envisages that the entrepreneurs plays an important role in economic development
because of their creativity and innovations.
(2)Parson and Smelser regarded entrepreneurship as one of the essential elements of economic
development and other being the output of capital.
(3)Harbison encompasses and incorporates entrepreneurs among the main movers of innovations.
(4)Sayigh views entrepreneurship as an essential dynamic force.
The role of entrepreneurship differs from one economy to another. It depends upon
several factors such as the easy availability of resources, skilled labour, less social and
economic overheads and so on. If the conditions are favouring towards the
entrepreneur's contribution then the national income of such countries would be
relatively higher than that of the unfavoured economies.
The entrepreneurs in the underdeveloped regions are referred as "imitators" but not an
"innovators" as they only tends to imitate the innovations developed or initiated by the
other entrepreneurs in the developed regions due to scarcity of funds, unskilled labour,
social and economic overheads. Further, more innovation leads to huge expenditure than
imitation which is less expensive.
Mostly due to scarce funds and imperfect markets in underdeveloped regions, most of the
entrepreneurs are establishing small-scale enterprises. As imitation needs less funds that
innovation, the need is recognized to have more imitative entrepreneurs. It has been found
that the imitation of innovation of developed countries proves to the result oriented in
underdeveloped countries and increases the economic development at a faster pace.
Proper imitation is not an easy task and requires the equal efforts and entrepreneurial
ability as that of innovation.
India being an underdeveloped country aims at decentralized industrial structure to achieve
balanced regional development. Small-scale entrepreneurship plays a very important role
 in achieving the balanced regional development. It is clear that the small scale industries
provide quick large-scale employment, result in equitable distribution of national income
and also leads to optimum and effective utilization of unexploited sources of capital and
resources.
Consequently, it is evident that India has recognized the significant role played by the
entrepreneurs in the economic development from the fact that it had established various
entrepreneurship development institutions.
The role of entrepreneurship in the country's economic development can be
summarized as follows,
(1) Entrepreneurship helps in accumulating capital through effective mobilization of
saving of general public.
(2) Entrepreneurship declines unemployment which is the root cause of all social
economic problems by providing quick large-scale employment.
(3) Entrepreneurship develops BRD (Balanced Regional Development).
(4)Entrepreneurship ensures equitable distribution of income, wealth and even political power in
favour of the public.
(5)Entrepreneurship declines the concentration of economic power in the hands of few.
(6) Entrepreneurship results in effective and optimum utilization of capital and
resources.
(7)Entrepreneurship helps the optimal utilization of capital and resources.
(8)Entrepreneurship helps in developing backward and forward linkages which further helps in
economic development.
(9)Entrepreneurship develops the country's export trade, which is an important sources for
economic development.
Economy of a nation influenced by entrepreneurs:
The influence by entrepreneurs for economic of notions are as follows,
(1)Entrepreneurs Introduce Innovations and Induce Economic Growth : Entrepreneurs often
create new technologies, develop new products or process innovations, and open up new
markets.
(2)Entrepreneurs Increase Competition : By establishing new businesses, entrepreneurs intensify
competition for existing businesses. Consumers benefit from the resulting lower prices and
greater product variety. Researchers have developed a measure of market mobility, which
identifies the effects of new business formation on existing firms.
(3) Entrepreneurs have Positive Employment Effects in the Short and Long-term and
Negative Effects in the Medium Term : Entrepreneurs stimulate employment growth
by generating new jobs When they enter the market. Research has shown (after
disentangling all the potential effects) that beyond this immediate effect there is a
more complicated.
(4) New Businesses Boost Productivity : Competition between new and existing
firms ideally leads to survival of the fittest. Even though overall employment may
decline, new firms can boost productivity . The productivity-enhancing effect of
business formation occurs in the medium term, when the employment effect is
dominated by the displacement of existing firms. This happens for two reasons,
(i) New firms increase competition in the market and thus diminish the market power of
incumbent firms, forcing them to become more efficient or go out of busine ss.
(ii) Only firms with a competitive advantage or firms that are more efficient than
incumbents will enter the market. The subsequent selection process forces less
efficient firms (both entrants and incumbents) to drop out of the market.
(5) Entrepreneurship Encourages Structural Change : Existing firms Often struggle to
adjust to new market conditions and permanent changes, getting locked into their old
positions. They fail to make the necessary internal adjustments and lack the ability for
"creative destruction," The entry of new businesses and the exit of worn-out firms can
help to free firms from a locked-in position. Moreover, entrepreneurs may create
entirely new markets and industries that become the engines of future growth
processes.
(6) Entrepreneurs also Create Social Change : Through their unique offerings of new
goods and services, entrepreneurs break away from tradition and indirectly support
freedom by reducing dependence on obsolete systems and technologies. Overall, this
results in an improved quality of life, greater morale and economic freedom.
(7)Community Development : Entrepreneurs regularly nurture entrepreneurial
ventures by other like-minded individuals. They also invest in community projects and
provide financial support to local charities. This enables further development beyond
their own ventures.
Government policy towards entrepreneurship:
 The policy framework has been developed to åccomplish the vision of Skill India by
adhering to the objectives. The framework outlines 11 major directions and enablers
to achieve these objectives of skilling India,
(1)Aspiration : The need of the hour is to make skill development aspirational for the youth in
our country. For skill training to be looked at as a matter of choice, it must
(i)Be integrated with the general education system, so that vocational education and training is
also seen as a valid route to degrees and diplomas of institutions of higher learning and the
positions of authority that are open to persons with such qualifications.
(ii)Associated with sustainable livelihood pathways.

(iii)Have a causal relationship with increased incomes for the skilled workforce.
Government will make proactive efforts for mobilizing candidates for skill
development and entrepreneurship. A Labour Market Information System (I-MIS)
including Skill Development Management Systems (SDMS), Skillpedia etc., as part
of the National Portal for skilling will be created in next one year to inform the
candidates Of the choices available to them in terms of sectors, modules and training
providers with better career opportunities,
The Prime Minister's Skill Development Fellow scheme will be introduced through
which talented, young individuals will be selected through a highly competitive
process. These Fellows will work with the State and District administration to spread
a wareness about skill development, identify the local needs of the region and steer
the skill development efforts.
(2)Capacity : The annual skilling capacity in the country was estimated at about 7 million in
2014. In the current landscape, capacity is being created by private sector training organizations,
industry in-house training, government and private IT’s, tool rooms and in schools, colleges and
polytechnics.
For all existing and new capacity that will be generated, the focus will move from
inputs to outcomes of skill training that include employability and placements of
trainees. For Government supported schemes, funding will be linked to out comes of
the training programmes.
The Government will support the creation and use of infrastructure in both public
and private domain through appropriate equity, grant and loan support. It will continue
with renewed focus to encourage new training entrepreneurs to enter into the skill
 development space by providing milestone linked funding support through existing and
new institutional mechanisms.
National Universities for Skill Development and Entrepreneurship will be promoted as
an institute of excellence for skill development and training of trainers, as denovo
institution or a part of existing university landscape. State level institutions as a part
of this university will be promoted to coordinate the University work in the States.
Skilling will be integrated into formal education by introducing vocational training
linked to the local economy. Skill courses would be developed as independent subjects
and provision would be made to include the outcomes as part of the qualifying marks
for admission into higher level courses.
(3) Quality : 'One Nation One Standard' should become the mantra to ensure that
national standards and quality for skilling are globally aligned and the Indian youth
can aspire to secure local, national and international job opportunities. Quality Of
training can be measured by the competency outcomes and employability of the
trainees. The following parameters have been identified for improving quality,
(i)Quality Assurance : A Quality Assurance (QA) framework embedded in the National Skills
Qualification Framework (NSQF) will be finalized within next one year.
This will enable build trust and confidence in the system by putting in place
mechanisms that ensure the qualifications (and related training) produce consistent
quality outcomes and are relevant to the labour market. It will ensure that training
providers have the capacity to deliver training that meets the quality requirements.

(ii)Market led Standards : Sector Skills Councils (SSCs), as industry-led bodies, will be
strengthened in terms of making them more representative, expanding their outreach and
increasing their efficiency. The development of National
Occupational Standards (NOS) and Qualification Packs (QPs) for various job roles in a
sector is the responsibility of the SSCs. The outcome standards for each job role will
need to be clearly defined and notified as per National Skills Qualification Framework
(NSQF). The SSCs will be responsible to ensure that the persons trained to the
NOS/QPs are actually employed by the employers in their sector.
(iii) Mobility : All formal and vocational education including skill training will have
to align themselves with the NSQF by December 2018. It is a nationally integrated
education and competency based skill framework that will provide for multiple
 pathways, horizontal as well as vertical, within vocational education, vocational
training, general education and technical education, thus linking one level of
learning to another higher level. This would facilitate both horizontal and vertical
mobility with formal education on outcome based equivalence linked to a uniform
credit framework. A legal framework to support NSQF will also be put in place.
(iv)Creating a Dynamic and Demanddriven Curriculum Framework : The Curriculam needs to
be in sync with emerging demands. The curriculam will be developed in consultation with
industry representatives, experts and academia by the competent bodies, to meet the outcomes as
provided for in QP and NOS. It would be done with the objectives of providing quality training
and gainful employment in-line with the latest market trends. It would also focus on providing
clear career pathways which can provide access to lifelong learning and sustainable livelihoods.
(v)Soft Skills and IT Skills : Language, basic IT and financial literacy is an integral part of most
job roles in the economy today. Accordingly, all skill training programmes shall include
basic modules of computer literacy, finance, language and soft skills like etiquettes, social and
life skills to enable the youth to be employable and market ready.
(4)Synergy : Skill development programmes being implemented by various Ministries/
Departments/agencies of the Central Government have different norms as regards the eligibility
criteria, duration of training, maximum amount for training, outcomes, monitoring and tracking
mechanism etc. This multiplicity of norms and parameters results in avoidable difficulties in
implementation and makes it difficult to evaluate the performance of the skill development
programmes across the Central Government in an objective manner.
(5)Mobilization and Engagement : Industry needs to be closely involved in providing job
opportunities to the skilled workforce. Industry will be encouraged to increasingly move towards
employing only certified skilled people. In addition, employers need to rationalize the
compensation paid across different levels of skills to award a skill premium for increased
productivity as a result of higher skills. Skill Development is a shared responsibility of both the
Government as well as the Industry. Since the industry is one of thé major stakeholders, it needs
to actively contribute to the cause of skill development. The SSCs are industry led bodies, The
industry should earmark atleast 2% of its payroll bill (including for contract labour) for skill
development initiatives in their respective sector. These funds can be channelized for Skill
development activities either through the respective SSCs or through the National Skill
Development Fund (NSDF).
(6)Global Partnerships : The objective of global partnerships and international collaborations are
to leverage best practices from across the world. Such collaborations will immensely enrich
training programmes by enhancing quality through learning from successful international models
of vocationalization of education, engaging with industry, etc. Institutional arrangements and
mechanisms through joint working groups, secretariats, etc., will be established for regular
exchange of knowledge, experiences, research findings, teaching and learning materials and
innovations in skill development.

The Government would promote a skills training ecosystem that would also enable
training and placement of the Indian youth in overseas jobs. The ageing developed
world is expected to face a huge skill shortage while our country has the potential to
reap its demographic advantage and export skilled labour to the world,
(7) Outreach and Advocacy : One of the biggest challenges faced in the skilling
sector is the difficulty of connecting supply with demand. A Labour Market
Information System (I-MIS) will be set up to, inter-alia, serve as aggregator of both
demand and supply of skills and consequently remove the information asymmetry in
the market and help connect supply with demand. In addition, while keeping the
trainees as the focal point of initiatives, the I-MIS would cover a range of
stakeholders such as training providers, industry/ employers, Government agency/
policy makers Assessment agencies, Certifying agencies, Funding agencies,
International Agencies Sector Skill Councils, Labour Market tracking agencies,
Government and private agencies. The system would be used for forecasting future
demand and accordingly preparing thc supply of labour force.
To develop the unorganized sector, the I-MIS will be used to aggregate the
availability of labor along with their certified skill levels that can help some of them
to move to organized sector. Technology will be also leveraged for aggregation of
informal sector workers through mobilcbascd IT applications for various sectors to
link them directly to the market and also make them accessible to the prospective
employers.

(8) ICT Enablement : Promotion of only brick and mortar facilities will not enable
the speed and scale desired to transform the skill development efforts. Therefore the
use of technology will be leveraged to scale up training facilities enabling access to
remote areas and in increasing the cost-effectiveness of delivery of vocational
training activities.
The government will also look to support innovative products, solutions and models
that address critical gaps in the skills ecosystem in an effective manner. Use of existing
available networks such as the widespread Optical Fibre Network will be optimized.
 This platform would provide standardized training content to be used by Trainers/
Training Institutes for delivery of Vocational Training. Stakeholders will be
encouraged to develop Massive Open. On-line Courses (MOOC) and virtual
classrooms for easy access and convenience. Creation of blended learning
environments to deliver high quality vocational training in under-served regions of
India will be promoted.
Technology would be leveraged in monitoring of Government schemes related to skill
development including the entire ecósystem from the Government agency to the
training provider to the trainee to the financial transactions.
(9) Development of Trainers : To achieve the massive target of skilling, it is of
utmost importance to have trainers of excellent quality that are capable of
training people in several fields.The Government will decisively intervene
in this sector directly or through other stakeholders to enable training organizations
tap the experience of already existing trainers, bring more experienced people in the
fold especially the ex-servicemen in defence, railways and retired -people from
industry, who already have relevant experience.
Career pathways will be defined for the trainers to make the profession more attractive
for the youth.
(10)Inclusivity : High inclusivity is one of the central visions of the Government. It is necessary
to promote skill development initiatives that will harness inclusivity forall irrespective of gender,
location, caste, sector etc. One of the key objectives is to ensure that the skilling needs of the
disadvantaged and the marginalized groups like SCs, STS, OBCs, minorities, women and
differently abled persons, as well as those living in difficult geographical pockets, are
appropriately taken care of.
The government will attach high priority to socio-economic growth of the rural areas
since India lives in her villages. Adequate focus will be given to youth from deprived
households in the rural area by establishing Skill development centers.
(11)Promotion of Skilling amongst Women : According to Census Data 2001, women account for
48% of the entire population in India. The women have the Capability to further drive the
economy of the country if their participation in the Workforce is increased. With the help of
skilling, women can have viable incomes, decent work and be major actors who can -contribute
equally to the economic growth of the country.
Promoting training in non-traditional fields for women through the establishment of
specific training programmes that focus on life skills training modules and literacy
 training. Apart from that, efforts will be made to increase the pool of women trainers
and providing them certification by earmarking a certain percentage of intake in
training of trainers institutes, for women.
Objectives of the government towards entrepreneurs:
Make in India is a campaign launched by the Government of India in order to attract
capital and technological investment and initiate product manufacturing in India by
the multi-national and national companies to improve the Indian economy.
Make in India campaign provides all the top investors a favorable opportunity to come
in India and invest in businesses from electrical to electronics, from automobiles to
agro value addition, from satellite to submarine, etc.
The major objective behind the initiative,
(1) Is to focus on job creation and skill enhancement in 25 sectors of the economy.
(2) Also aims at high quality standards and minimizing the impact on the environment.
(3) Hopes to attract capital and technological investment in India.
The objective of government towards entrepreneurship in rnake in India are,
(1) To start-up the core manufacturing sector by an entrepreneur and play a key role in
success of both enterprise and nation.
(2) . To start entrepreneurship and e-commerce in the present time and highlighted th
encouraging core of manufacturing sector by an entrepreneurs.
(3) To make entrepreneurs in financing the whole introduction of manufacturing units
(4) To promote state and intake as a commitment to scale up the operations by
entrepreneurs without unnecessary diversification ambitions.
(5)To create job market by enhancing entrepreneurs opportunities.
(6)To make trade and common by manufacturing the highest quality products.
(7)To introduce skilled based certification and training process.
(8)To create capital accumulation by entrepreneurs through investing.

Small scale industries and it’s features:

 Small-scale industry (SSI) refers to businesses that are relatively small in terms of
their workforce, investment, and production capacity. These industries typically have
limited capital investment and often focus on producing goods or providing services
on a local or regional level.
According to Fiscal Commission, 1950 SSI is A unit operating mainly with hired
labour usually 10 to 50 hands.
According to Small Scale Industries Board, 1955 "small-scale industries using
electricity or other forms of power can employ up to 50 people.For industries that do
not use power, the limit is extended to 100 employees. This reflects the labor-
intensive nature of these industries and capital investment which does not exceeds 5
lakhs."
According to Government of India, 2000 in SSI’s The capital investment in plant and
machinery should not exceed Rs. 1 crore.
The following are the feature of small scale industries,
(1) Ownership : Ownership of small-scale unit is with one individual in sole
proprietorship or it can be with a few individuals in partnership.
(2)Management and Control : A small scale unit is normally a one man show and even in case
of partnership the activities are mainly carried out by the active partner and rest are generally
sleeping partners. These units are managed in a personalised fashion. The owner is actively
involved in all the decisions concerning business.

(3)Gestation Period : In the context of entrepreneurship, the term "gestation

period" refers to the interval between the inception of a business idea and the
point successful implementation of that idea.The gestation period in is the time it takes
to get a business to a stage where it can start to show results
(4) Area of Operation : The area of operation of small scale unit is generally localised
catering to the local or regional demand, The overall resources at the disposal of a
small-scale units are limited and as a result of this, it is forced to confine its activities
to the local level.
(5)Technology : Small industries are fairly labour intensive with comparatively smaller capital
investment than the larger units. Therefore these units are more suite for economies where
capital is scarce and there is abundant supply of labour.
 (6)resources : Small scale units use local or indigenous resources and as such can be
located anywhere subject to the availability of these resources like labour and raw
materials.
(7)Dispersal of Units : Small-scale units use local resources and can be dispersed over
a wide territory. The development of small scale units in rural and backward areas
promotes more balanced regional development and can prevent the influx of job
seekers from rural areas to cities.
(8)Flexibility :Small-scale units as compared to large-scale units are more change
susceptible and highly reactive and responsive to socio-economic conditions. They are
more flexible to adopt changes like new method of production, introduction of new
products etc.,

Role and importance of small scale industries:

According to late Prime Minister Shri Jawahar Lal Nehru, "Cottage and small-scale
industries have great significance for Indian economy. They must be developed in
every aspect". Their importance is obvious from the following given facts,

(1) Employment : According to Planning Commission 519 lakh persons are getting
employment from small and cottage industries. Of these, 120 lakh persons in handloom
industry, 15 lakh in Khadi, 55 lakh in silk industryr 86 lakh in village industries and 65
lakh in handicraft industry are employed. 17 lakh persons are employed in small
industries. Of these, 53 lakh are getting employement in powerloom industry. Thus
from the point of view of employment generation these industries hold out good
promise. In order to provide employment to ever rising population in this country there
are very few alternatives to small-scale and cottage industries. These industries help
improve partial employment situation. In their slack season, farmers can supplement
their income by engaging themselves in cottage industries. cottage industries go a long
way in removing disguised unemployment. From employment point of view, in a
country like India, where capital is in short supply, cottage industries have special
significance. These industries can be started with an investment ranging from Rss
3,000 to Rs. 10,000 per head.
(2)Decentralization : Large-scale industries have mostly the tendency to concentrate at one place
It leads to regional imbalances.This concentration can result in certain areas becoming
economically prosperous while others remain underdeveloped. During war, such concentrated
industries are likely to be completely annihilated. On the contrary, cottage and small scale
industries are dispersed throughout the country and danger of their complete destruction is the
minimum, in the event of war. By promoting SSIs in rural areas, the pressure on urban centers
can be reduced. This helps in addressing issues like housing shortages, traffic congestion, and the
high cost of living in cities.SSIs create job opportunities in rural and semi-urban areas, reducing
the need for migration to cities for employment.
(3)Industrial Peace : In these industries relations between employer and emplyoees are direct and
cordial. Chances of exploitation of labourers are very little.Consequently, there are very few
cases of industrial disputes and thus industrial peace is maintained to the advantage of the entire
society. Labourers also have their identity.
(4) Equal distribution of Wealth : Small and cottage industries are instrumental in
the equal distribution of wealth and income. It is so because in these industries
capital is not concentrated in few hands. It is widely distributed in small
quantities. Income from these industries is also distributed among large number
of people.
(5)Suitable for Underdeveloped Countries like India : These industries have special
significance in an underdeveloped country like India. These countries lack capital but
have large labour force. Small and cottage industries are labour intensive. Compared to
large industries they need less capital. With a capital investment of Rs. 5,800 small
industries can provide employment to one labourer as against an investment of Rs.
31,000 to provide employment to one labourer in large-scale industries.
(6)Less Pressure of Population on Agriculture : Cottage industries play a significant role in a
predominantly agricultural country like India. Because of large pressure of population on hand,
farms are divided into small pieces. It is uneconomical to cultivate these small farms. Every
year pressure of population on land increases at the rate of 30 lakh people. It has become
imperative to lessen this ever increasing pressure on land. It can be possible only if small-scale
and cottage industries are established in large numbers and more and more villagers are
employed therein. In order to lessen the pressure of population on land from 70 percent to 60
percent, small-scale and cottage industries are of great significance.
(7)Artistic Goods : Small and cottage industries alone can make the production of
artistic goods possible. In India, these industries produce artistic goods, such as,
Banarsi Sarees, ivory work, carpets, studded ornaments etc. These goods have large
market abroad. Thus, these industries help earn good deal of foreign currency. Thus,
in 2000-2001 handicrafts worth Rs. 5,097 crore and gems and jewellery worth Rs
33,734 crore were exported to foreign countries.
(8)Increase in Production : There is great possibility of increasing the production in
the country with the help of these industries. Of the total production of industrial
sector, 51 percent is from large-scale industries and 49 percent from small-scale and
cottage industries. In 2001, small industries produced goods worth Rs. 6,45,496
crore.
(9)compIementary to Large Industries : These industries serve as complementary to
large industries. They produce such goods as are used by large industries. Small
Components and parts used in motor cars, cycles, machines etc., can be produced
economically in small industries.
(10) Encouragement to cooperation : Cottage and small industries can be started with
little Capital. Their management is also simple. They can be easily organized on the
basis Of cooperation. Thus cooperatives get encouraged by these industries.

(11) Less Gestation Period : The period between setting up or an industry and its
actual production is called gestation period. Shorter this period quicker will be the
Production and prices will not rise. Small industries have relatively less gestation
period. There is very little time intervening between their establishment and actual
Production whereas large-scale industries have long gestation period spanning over
years Thus, to check rise in prices to improve the standard of living and to increase
the pace of production, small industries are of great significance.
(12)Experience from Foreign Countries : In almost all countries of the world, these
industries have their own significance. In America, 65 percent of the labour force gets
employment in small industries. In England, 29 percent of employment is provided
by such factories as employ from 5 to 30 labourers. In Japan, 83 Percent of the
labourers get employment in these industries.
(13) Use of Local Resources : Small industries make use of those local resources which
would have remained unused for want of such industries. These resources are not
wanted by the large-scale industries. For example, small industries encourage many
people to become entrepreneurs. Such entrepreneurs play an important role in the
economic development of the country. Likewise savings effected by villagers are not
mobilized by large-scale industries, these are made use of by small industries. Punjab,
Haryana and Himachal Pradesh testify that given the proper facilities small industries
can help increase production considerably by using local resources.
(14) Exports : These industries have great importance in the export trade of the country,
In 2001, small industries contribution to the total export trade was 32 percent,
Contribution of the small industries to the export of non-traditional, goods like
electrical equipments, electronic goods etc., has been 45 percent. In 2001, village and
small industries exported goods worth Rs. 59,753 crore.
Objectives of small scale industries:
The small scale sector can stimulate economic activity and is entrusted with the
responsibility of realising the following objectives,

(1)To create more employment opportunities with less investment.

(2)To remove economic backwardness of rural and less developed regions of the
economy
(3)To reduce regional imbalances.
(4)To mobilise and ensure optimum utilisation of unexploited resources of the country
(5)To improve standard of living of people.
(6)To ensure equitable distribution of income and wealth.
(7)To solve unemployment problem.
(8)To attain self-reliance.
(9)To adopt latest technology aimed at producing better quality products at lower costs.
Scope of small scale industries:
The scope for setting up small business industries in India despite the growth of large
scale industries still exists. There are certain important factors which are responsible
for the scope of small business enterprises. These are limited resources, specialized
service, flexibility, personal touch, employee relations, direct motivation, limited
demand, supplying the needs of large corporations and inherent disadvantages of
large enterprises. Small business in India include small scale industries and tiny
units. Such business enterprises have an important role in India's industrial
development. The following factors make way for the scope of small business
enterprises,
(1) Limited Resources : Individuals with limited resources and skill always opt for
starting a small business, in certain cases, the nature of production process favours
small units. Moreover, a small. business can be established without much legal
procedures.
(2) Limited Demand : The demand for certain product is local and seasonal. In such
case, large scale operations are not economical and small business units are required.
 Moreover, in certain cases, the nature of production process favours small busines
units.
(3) Personal Touch : Small business enterprises are more likely to succeed in areas
where personal touch in handling customers in required. Beauty parlours, interior
decorators, high-style boutiques, hair cutting saloons etc., are examples, where the
personal. touch is required and most of these continue to be the small enterprises.
(4) Flexibility : Some enterprises are subject to wide variation in demand, e.g.,
manufacturing of jewellery, fashion garments etc. In such cases, greater flexibility Of
operations are required. Small firms are able to react more quickly to changes in the
environment. They are usually, owner-operated and this allows them to try new
products, new methods and new ideas without requiring lengthy and elaborate
approval procedures.
(5) Individual Temperament : Small business is a way of life for people who do not
like boss. Many businessmen do not want to expand their business due to fear of
loss Of freedom. Growth may involve more work and worry. People who want to
lead a Comfortable and simple life may be satisfied with small business enterprise.
(6) Direct Motivation : Small scale enterprise foster individual initiative and skill.
The identify of ownership and management serves to curb misconduct as mistakes
bear directly on one's property and income. There is maximum incentive to put the
resources to best use because the resulting gain benefit directly to the owner.
(7) Social Utility : Small scale enterprises are helpful in generating self-employment
a large number of persons. They are also helpful in preventing the concentration of
income and wealth. They facilitate the economic development of rural and backward
areas. Such enterprises use local resources and their Social cost is comparatively
low.
(8) Inherent Disadvantages of Large Business Enterprises : The scope Of small
business emanates from the inherent disadvantages of large enterprises such as,
(i) The potential for too much concentration of economic power.
(ii) The potential for reduced managerial efficiency.
(iii) The lack of personal touch between officers and the subordinates leading to
labour management disputes.
Advantages of small scale industries:
 The main advantages are as follows,
(1) Generation of Employment : The small-scale industries are labour intensive i.e,
the ratio of labour to investment is very high in their case. A given amount of capital
invested in a smallscale industry provided more employment than the same amount of
capital invested in a large-scale industry. Since capital is scarce and labour abundant
in India, the generation of employment is the advantage that can be put forward for the
support of small-scale industries in India. Moreover, these industries can be set-up at
the very doorstep of workers and, thereby, provide work for the unemployed, more
work for the underemployed and supplementary work for the seasonally
unemployed workers.
(2) Self Employment : The small-scale industries offer almost limitless opportunities
for self employment and hence are particularly suited to a developing country like
India where there is a big problem of unemployment and underemployment.
(3)Lesser Capital Requirement : Another advantage of smalls cale industries is that they need
relatively lesser amount of capital than that required by large-scale industries As capital is very
scarce in an underdeveloped country like India, it may be used to greater advantage in small-
scale sector.

(4)Mobilisation of Capital : Small-scale industries not only make economies in the use of
capital but also mobilise capital that would not otherwise have come into existence Large-scale
industries cannot mobilise the savings from rural areas, while this task can be effectively
accomplished by setting up a network of small-scale industries in such areas.

(5) Mobilisation of Entrepreneurial Skill : Another advantage of small-scale industries

is the lesser requirement of skill and expertise, which is also scarce in a developing
country like India. Further, large-scale industries cannot utilise a number of
entrepreneurs who are spread over small towns and villages of the country. On the
other hand, small-scale industries can effectively mobilise such entrepreneurial skills

(6)Equitable Distribution of Income : Small-scale industries secure a more equitable

distribution of income and wealth. They are particularly suitable for the fulfillment of the
objective of social justice. This is ensured because the ownership of smallscale industries is
more widespread and they offer a much longer employment potential as compared to the large-
scale industries. The development of large-scale industries tends to concentrate large incomes
and wealth in a few hands.
(7)Balanced Regional Development : Small-scale industries utilise local resources, bring about
dispersion of industries and promote balanced regional development. The growth of large-scale
industries on the other hand have a tendency towards concentration of industries at a few places
leading to many evil consequences such as overcrowding, pollution,-creation of slums, etc.
Concentration of industries at a few places is undesirable from the point of view of national
defence also, as during war times, there is a greater risk of destroying different industries
concentrated at one place.
CHARACTERISTICS OF MSME(ministry of small scale industries)
 It is generally a one-man show.
 The owner has knowledge of what is actually going on in the business.
 He takes an effective participation in all matters of business decision taking.
 The Micro industrial unit has a lesser gestation period i.e. the period after which the return on
investment starts.
 Micro units use indigenous resources and therefore can be located any where subject to the
availability of these resources like raw materials, labour etc.
 Micro enterprises are fairly labour intensive with comparatively smaller capital investment
than the larger units.
 Using local resources, micro enterprises are decentralized and dispersed to rural areas. Thus,
micro enterprises in rural areas promote more balanced regional development on the one hand,
and prevents the migration of job seekers from rural areas to cities and urbanizing centers.
MSME ACT – 2006 (According to Ministry of Small Scale Industries Notification No.
S.O.1722 ( E) dated Oct.2006):
Micro Enterprises - Investment in plant & machinery doesn’t exceed Rs. 25 lakhs an equipment
not to exceed Rs.10 lakhs.
Small Enterprises - Investment in plant & machinery more than Rs.25 lakhs but doesn’t exceed
Rs.5 crores. Equipment not to exceed Rs.2 crores.
Medium Enterprises - Investment in plant & machinery is more than Rs.5 crores but not to
exceed Rs.10 crores. Equipment from Rs.2 to Rs.5 crores.
The Micro, Small And Medium Enterprises Development Act, 2006 MSMED Act was
established to provide for facilitating the promotion and development and enhancing the
competitiveness of micro, small and medium enterprises.
Prior to 2006 Act: Small and village Industries
After 2006 Act: Micro and Small Enterprises.
Problems associated with SSI :
The various problems faced by small-scale industries are as under,
(1)Inefficient Labour : Labour is major but active player in small-scale industries. But they lack
training and developmental opportunities in small-scale sector. So they are unable to contribute as
expected from them. Since size of small units is not always optimal so they are also unable to
understand the importance of training and development. Level of education of workers working
in small-scale sector is also low and they fail to cope up with the challenges of modern
production system. Professionals and technocrats are also not interested to join small scale as this
sector is not ready to compensate them properly. So small entrepreneurs are facing the constraint
of inefficient labour force and unable to improve their productivity,
(2)Defective System of Supply of Raw Materials : Small scale industries are facing the problem
of short supply of raw materials.Small size and weak financial position also force them
to unutilize the services of middlemen to get raw materials on credit from suppliers. Canalising
agencies like state level small industry corporations, STC, MMTC and Handloom Development
Corporations are not providing much help in arranging adequate supply of raw materials at right
price in right time. So they fail to utililse their full production capacity and it also increases their
cost of production which adversely affect their competitive strength in the market.
(3)Absence of Credit Facility : Historically, SSIs have had privileged access to bank finance
through cheap priority sector lending. Since interest rates were fixed lower for them than the
market rates, they did not reflect the higher risks and costs of investing in small borrowers. SSIs
also benefited from the subsidies implicit in the tax Standards for provisioning for bad and
doubtful debts. The deregulation of interest rates in present scenario forces them to pay more.
The bench mark rate of interest for banks is the price lending rates a higher rate reflects
the risks of lending to individual borrowers. Consequently, interest rates have risen
sharply for small-scale units. The priority sector lending scheme hardly softens the
burden since not more than Rs. 2 lakh can be borrowed under this scheme. Besides,
SSI$ are also unable to generate resources as they lack systematicway to communicate
their work to the capital markets and muster support from the intermediaries. Due to
poor financial image, they generally fail to get their credit facility at reasonable cpsts.
(4)Lack of Machinery and Equipment : SSIs are also facing the problem of inferior supply of
machinery and equipments etc. Most of companies which are engaged in production of plants and
machineries are meant for medium and large scale companies. Only selected companies or few
producers are engaged in the production of plant, machineries and equipments for small-scale
sector. So they generally charge high price for their capital goods supplies from small-scale units.
Besides, bargaining power of SSTs is not so much and they have to work with available
machinery and equipments in the market. They have also been forced to use second-hand
machines. It also affects the production performance of SSIs.
(5)Huge Number of Bogus Small Firms : Government policy favours SSIs in terms Of
concessions, subsidy and incentives. This has prompted the so called entrepreneurS to develop
bogus firms on paper to avail government subsidies and incentives It makes impossible for the
genuine firms to get due concessions, subsidies etce. from the Government. They indirectly help
the medium and large-scale enterpriSeS in availing raw materials etc. at reduced rates.
Availability of cheap finance also encourages the bogus firms to operate in the small-scale sector.
(6)Unsuitable Location : Selection of location for the development of plants etc, also creates
problem before the SSIs. The choice of location is generally governed by different consideration
like availability of infrastructural facility, the cost and tenure of acquisitiðns, availability of
labour and the proximity of markets. Small entreprenetlrs are not properly trained in deciding
about suitable location. Actually they select their location due to other consideration like
availability of cheap land family business, sentimental attachment to their traditional ancestral
property etc..
(7)Competition from Large Scale Units : SSIs are facing the problem of competition from their
other counterparts i.e., medium and large scale industries. Since 1991, a large number of items
reserved for small industries are now freely importable. The Government has also announced that
it is considering a phased removal of quantity restrictions on consumer goods imports over a
period of five years.
Medium and large-scale industries are also producing goods, which are competiting
with the goods being produced by the SSIs. So in practice, SSIs are unable to complete
with large-scale units as their size is small and products are not cost effective.

(8)Obsolete Technology : SSIs lack latest technology as they do not have any technological
support from the Government and other technological institutes and laboratories. But in practice,
technology alone can ensure quality and high level of productivity. R and D efforts are costly
venture and SSIs do not have resources to finance these programmes individually and internally.
Small enterprises have a very limited choice with regard to foreign. collaboration and
technological support too. Their potential partners overseas have a better reputation for
innovation but the investment climate in India is not yet hospitable enough to attend them in
smallscale sector. Special steps have not yet been taken to address the issues of collaboration
between Indian and overseas small industries.

(9)Absence of Organised Marketing Facility : Small-scale industries are unable to spend huge
amount on the development of marketing facilities as they lack resources. Lack of
standardisation, poor design and quality, lack of precision and proper finish, absence of after-sale
service, ignorance about potential market, financial weakness are some of the problems in their
selling process.
(10)Poor Recoveries : It is general practice for buyers to avail credit facility from sellers. SSTs
lack bargaining power in dictating their terms to the potential buyers for their Products. Provision
for credit facility with regard to sales is forced upon the SSIs by potential purchasers. Initially,
credit period ranges between one month to three months. But Purchasers generally avoid timely
payments. A situation has now developed in which buyers do not pay their dues to SSIs for more
than 12 months. It created working capital problems before the SSIs.
Linkages among Small, Medium and Heavy Industries:
Small industries Medium industries Heavy industries
Equity held by founder Mostly privately Mostly public
/ family. held family / P-E, investor-held equity.
few with public.
Owner Owners and Professional
management professionals play key management.
roles.
Decision-making Decision-making Distributed
largely by owner. by owner/ CEO decisionmaking by
and some key organizational
leaders (single/ hierarchy.
dual).
Short-term(seat-of- Some long-term Extensive long-tern
thepants) planning planning mostly planning horizon by
primarily by by owner/ key dedicated teams.
owner. executives. .
Informal processes, Some formal Formal structure and
mostly people get processes, people processes, mostly
things done. get many things people independent.
done.
Most capital needs Limited sources of Wide range of funding
met by leveraging capital, some hard to sources.
personal net worth. access.
Small customer base Limited customer Diverse markets
generally local base limited to (many global) with
markets. geographical or diverse customers
industry niche.
Limited personnel Personnel Multiple career
development development limited development paths and
opportunities. to key employees. programs.
Little external input Little external input Significant external
mostly from friends from friends, inputs from network
and network. network and 'trusted' and consultants, have
professionals. separate governance
structure.
 Linkage with small and heavy (large) industries:
The relationship between the small and the heavy (large) industrial units
can be seen in various respects, which are stated below,
(1)Supplementary : Small industry can fill in the gaps between large production
and standard outputs caused by largescale industries. This is due to this
supplementary role of small industries that a small tricycle factory sustained and
flourished alongside a large cycle factory in Chennai city.
(2)Complementary : Apart from supplementary relationship, small industry has
been a complementary to its large counterparts. In the real world, many small
units produce intermediate products for large units. Such subcontracting
relationship between the small and large was particularly marked in the economic
history of today's industrially developed Japan. As industrialisation proceeds,
small firms seem naturally to shift from activities that compete with large firms
to complementary ones. Similarly, China too continues to rely on Mao's aphorism
of "walking on two legs" one being small and the other large. Under
complementary relationship, small units function under the tutelage of the large
units and enjoy the advantage of protected market for their products then, the
flourishment of such small units remains beyond doubt.
(3)Competitive : Though Small-scale industry cannot compete with large industry
in certain circumstances and in selected products, but they have comparative
advantage in some products. Example of such industries are bricks and
tiles, fresh baked goods and perishable edibles, preserved fruits, goods
requiring small engineering skill, items demanding craftsmanship and artistry.

(4)Servicing : Small industries do also install servicing and repairing shops for
the products of large units. In the case of India, such small servicing units can be
seen proliferating in respect of large industries like refrigerators, radio and
television sets, watches and clocks, cycles and motor vehicles.
(5)initiative : Attracted by the high profits of large units, small units can also take
initiative to produce the particular product. If succeeds, the small unit grows to
large over a period Of time.Staley quotes such initiation that many of the
automobile factories started this way in the United States of America. In our
country too, the electronic industry looks like following to this initiative pattern
of development.
TYPES AND FORMS OF ENTERPRISE:
Types of enterprises:
1. Service enterprises
o Consulting agencies
o Repair shops
o Professional – doctors, lawyers, engineers, chartered accountants
o Beauty parlors
o Carpenters
2. Trading enterprises
They undertake trading activities. They procure the finished products from
the manufacturers and sell these to the customers directly or through a
retailer
o Provisions shop
o Medical shops
o Dealership and agencies
o Clothes merchants
3. Manufacturing enterprises
Convert the raw material into finished products
Enterprise is also known as business enterprise or business organization or business
undertaking or unit. The various types or form of enterprises are shown In fig
(1)Sole Proprietorship / Trader : Sole proprietorship is also known as sole trader, or
individual proprietorship. 'Sole' means single and 'Proprietoirship' means ownership
It means only one person or an individual becomes the owner of the business. The sole
trader has to bears the whole risk himself.

According to L.H Haney, "The individual entrepreneur is the form of business

organization at the head of which stands an individual as one who is responsible
who directs its operations and who alone runs the risk of failure"
Thus, sole trader is a single person, owns, manages and controls all the activities of
the business.

The important features of sole proprietorship are,

 (i) One Man's Capital : The capital required by a sole proprietorship form of business
Organization is totally arranged by the sole proprietor. He provides it either from his
personal resources or by borrowing from friends, relatives, banks or other financial
institutions.
(ii) Unlimited Liability : The liability of the sole proprietor is unlimited. This
implies that, in case of loss the business assets along with the personal properties of
the proprietor shall be used to pay the business liabilities.
(iii) Less Legal Formalities : The formation and operation of a sole proprietorship
form of business organization requires almost no legal formalities. It also does not
require to be registered.
The following are the advantages of sole proprietorship,
(i) Easy Formation : There are no legal formalities to be observed while starting this
form of organization. Therefore, its formation is very easy and simple.
(ii) Direct Motivation : The entire profit of the business goes to sole trader. No body
can claim a share in the profit. It motivates him to expand his business activities.
(iii) Full Control : The proprietor is the monarch of the business he owns. He manages
the whole business and takes all decisions himself. In other words, proprietor
exercises full control over the functioning and working of the business.
(iv)Quick Decision : The sole proprietor is his own boss and need not consult any other
while making any important decisions. He is only control all the issues of the business.
Therefore, he can take quick decisions and improve his business effectively.
(v)Secrecy : Since the whole business is handled by the proprietor his business secrets are known
to him only. He is not bound to publish his accounts. Therefore, the degree of secrecy is the
highest in this form of organization.
The following are the disadvantages of sole proprietorship,

(i) Limited Resources : The capital and other resources of an individual are always
limited. The sole trader has to mainly rely on his own money and earnings, or he can
borrow, if necessary, from relatíves and friends. Thus, the proprietor has a limited
capacity to raise funds. This makes it difficult to plan any large scale expansion.
(ii) Limited Managerial Capability : In one person the different skills of marketing,
accounts, production are not there. So, it has only limited managerial capability.
 (iii) Not Suitable for Large Scale Operation : Since the resources of the sole trader are
limited, it is suitable only for small business and not for large scale operations.
(2)Joint Hindu Family Business : The joint Hindu family business means a business
Which is owned by the members of a joint Hindu family. It is also known as Hindu
undivided family business. It is a unique form of business organization found only in
India. It is governed by the provisions of the Hindu Law. The head of the family
manages the business. He is known as 'Kartat and has unlimited liability.
The main advantages of a joint Hindu family business,
(i) Ease of Formation : A joint Hindu family business can be started easily and
dissolved easily and quickly. No legal formalities are to be complied with, The
business is formed and operated by the operation of hindu law.
(ii)Unrestricted Membership : There can be any number of members in a joint Hindu family

business. They can start any business according to their desire and convenience.
(iii)Effective Control : The karta has complete control on the family business. He can take
decisions quickly without consulting other members. There is freedom of action for the karta.
The demerits joint Hindu family business are as follows,
(i)Limited Managerial Ability : The karta alone manages the business and after all the affairs of
the business. But the karta may not have managerial qualities, qualifications, skills and adequate
knowledge to manage the family business.
(ii)No Incentive to Work Hard : There is no encouragement to work hard because profits are
divided equally.
(iii)Dissolution of Firm : The firm has to be dissolved if the family breaks up.

(3)Partnership : Partnership is an association of two or more persons to carry on a business and

to share its pròfits and losses.According to Partnership Act, "Partnership is the relation between
persons who have agreed to share the profits of a business carried on by all any of them acting
for all".

The different types of partners as shown in below Fig

(i) Based on the Extent of Participation : Based on the extent of participation in the
functioning of the business, it can classify partners into,
Active Partners : If a partner takes an active part in the management of the business,
we call him as active partner. He is also known as a 'working partner'.
Sleeping Partner : A sleeping business partner simply invests his capital. He does not
participate in the functioning of the firm. Such a partner is also known as a 'dormant
partner'.
(ii) Based on the Sharing of Profits : Based on the sharing of profits, partners may be
classified into,
Nominal Partner : A partner who just lends his name to the partnership is known as a
nominal partner. He neither invests his capital nor participates in the day-to-day
working and management of the firm. Such partners are not entitled to a share of
profits, but they are liable to other parties for all the acts of the firm.
Partner in Profits : A partner who shares the profits of the business without being
liable for losses is called a partner in profits. As a rule, he will take any part in the
management of the business. This is applicable to a minor who is admitted to the
benefits of the firm.
(iii) Based on Liabilities : Based on liabilities also, partners may be classified into two
categories,
-Limited Partner : The liability of such a partner is limited to the extent of the capital
contributed by him. He is not entitled to take part in the management of the business,
but he can advise the other general members. His acts do not bind the
firm. He has right to inspect the books of the firm for his information. Such partners are
also called 'special partners'.
-General Partner : He is also called unlimited partner'. His liability is unlimited and he
is entitled to participate in the management of the business. Every partner who is not a
limited partner is treated as a general partner.
(iv) Based on the Nature of Behaviour : Based on the behaviour and conduct exhibited,
the partners may be divided into,
- Partner by Estoppel : A person who behaves in the public in such a fashion as to give
an impression that he is one of the partners in a partnership firm is called a partner by
estoppel. Such partners are not entitled to profits but are fully liable as regards the
firms obligations.
- Partners by Holding Out : If a particular partner of a firm represents that another
person is also a partner of the firm, and if such a person does not disclaim the
partnership relationship even after cðming to know about it, such person is called as
partner by holding out'. Such partners are not entitled to profits but are liable as regards
the obligations of the firm.
The following are the advantages of partnership,
(i)Easy Formation : A partnership firm is very easy to form. No formal documents
are required. A simple agreement is enough to start a partnership firm
(ii) registration not Compulsory : A partnership firm is exempt from registration
because registration is not compulsory. It is left to the discreation of the partners
(iii)Sharing Risk : The risk in the business is shared by more persons. The burden of
every partners will be much less as with the one person.
The following are the disadvantages of partnership,
(i) Limited Capital : Since there is a limit of maximum partners (20 in non-banking
firms and 10 in banking firms), the capital raising capacity of the partnership firms is
limited.
(ii) Unlimited Liability : The most important drawback of a partnership firm is that the
liability of the partners unlimited.
(iii) No Public Confidence : Since the accounts are not publicized, the firm may not be
able to command confidence of the public.

(4) Joint Stock Company : A joint stock company is a type of business organization
where the capital is divided into shares owned by shareholders. The company has a
 separate legal entity. It must be compulsorily registered. The capital of a company is
divided into small units called shares. Any one who holds or buys share in a company is
called shareholder.

According to Section 3(1) of Companies Act 1956, "A company is a company

formed and registered under the act or an existing company".
Companies may be classified on the basis of the following,
(i) Classification on the Basis of Liability : A company can be divided according to its
liability as,
Companies Limited by Shares : In this type of company, the liability of each
shareholder is limited to the amount they have not yet paid for their shares.once
shareholders pay the full value of their shares, they are not personally liable for any
additional debts the company incurs.
-Companies Limited by Guarantee :
This type of company does not have shareholders but instead has members who
guarantee to contribute a fixed amount to the company's assets if it is wound up.
Unlimited companies : A company without limited liability is called unlimited
company. Every member is liable to the debts of the company. At the timeof winding up
of the company, the liability of the member is enforced.
(ii)classification on the Basis of Number of Members : A company may be classified on the basis
of number of members,
private Company : According to Section 3(1) a private company means a company which,
Restricts the right to transfer its share, if any.
Limits the number of members to 50 not including its employee members.
Prohibits any invitation to the public, so subscribe for any shares and debentures of
the company.
Prohibits any invitation or acceptance of deposits from persons other than its
members.
A private company must have its own articles of association.
Public Company : A public company means a company which is not a private
company according to Section 3(1)(iv) of the Companies Act of 1956. In other words,
a public company means a company which, by its articles does hot.
 - Restrict the right to transfer its shares if any.

Limits the number of members to 50.

Prohibits any invitation to the public to subscribe any shares or debentures of the
company.
(iii)Classification on the Basis of Incorporation : On the basis of incorporation, companies may
be classified into,
Chartered Companies : The chartered company are the company formed by the
grant of a Royal charter. The charter contains the powers, rights and privileges to be
used by the chartered company.
Example : British East India Company.
Statutory Companies : A company may be incorporated by means of a special act
of the parliament or any state legislature. Such companies are called statutory
companies.
Examples : India are the Reserve Bank of India, Life Insurance Corporation of
India, Unit Trust of India, etc.

Registe Companies registered under the Companies Act of 1956 are called
registered companies. Such companies come into existence when they are
registered under the company act and a certificate of incorporation is granted to
them by the registrar. Such companies may be limited by shares Or limited by
guarantee.
(iv) Classification on the Basis of Control : On the basis Of control, companies be
classified into,
Holding Company : A company which controls another company is holding
company.
Subsidiary Company : A company which is controlled by another is subsidiary
company.
(v) Classification on the Basis of Nationality : Based on the nationality, the companies
may be classified into,
Indian Companies : The companies which are registered and incorporated in India are
called Companies'. These are registered under the provisions of Indian Companies Act,
1956.
 Foreign Companies : A foreign company is a company incorporated outside India but
establishes a place of business in India after .e commencement of the Companies Act,
1956.
The following are the advantages of joint stock company
(i)Limited Liability : In a Joint Stock Company the liability of its members is limited to the extent
of shares held by them. This attracts a large number of small investors to invest in the company. It
helps the company to arise huge capital Because of limited liability, a company is also able to
take larger risks.
(ii)Continuity of Existence : A company is an artificial person created by law and possesses
independent legal status. It is not affected by the death, insolvency etc., . of its members. Thus, it
has a perpetual existence.
(iii)Benefits of Large Scale Operation : It is only the company form of organization
which can provide capital for large scale operations. It results in large scale production
consequently leading to increase in efficiency and reduction in the cost of operation.
The following are the disadvantages of joint stock company,
(i)Formation is not Easy : In the joint stock company, the formation of company is not easy,
because of number of legal formalities must be observed by the promoer;To observe these legal
formalities promotors have to spend much time and money
(ii)Control by a Group : Companies are controlled by a group of persons known as the Board of
Directors. This may be due to lack of interest on the part Of the shareholders who are widely
dispersed, ignorance, indifference and lack of proper and timely infor mation. Thus, the
democratit virtues of a company do not really exist in practice.
(iii)Excessive Government Control : A company is expected to comply with the provisions of
several Acts, Non-compliance of these invites heavy penalty This affects the smooth
functioning of the companies.
(5) cooperative Societies : A cooperative Society is a voluntarily association of persons
who join together to safeguard their common interests. It is based on the principles of
self help, equality, democracy and freedom.

The following are the advantages of cooperative society,

 (i) Ease of Formation : It is quite easy to form a cooperative society. Any ten adults can
join together and form themselves into a cooperative. The legal formalities are very few
and simple.
(ii) Limited Liability : The liability of every member is limited to the extent of his share
in the society's capital. Therefore, the risk faced by every member is limited and known
(iii) Continuity and Stability : After registration, a cooperative society becomes a
separate legal entity. The death, lunacy or insolvency of a member does not affect its
existence.
The following are the disadvantages of cooperative society,
(i) Limited Capital : A cooperatives society if formed usually by people with limited means.
The principle of a one man one vote discourages members to invest large amounts in the
society. Therefore, a cooperative society often faces shortage of funds.
(ii)Inefficient Management : A cooperative society is managed by a committee consisting of
office-bearers elected by the members.
(iii)Affects Operational Efficiency : Want of skilled personnel or absence of coordination among
members adversely affect operational efficiency.
(6)Public / State Enterprises : They are also known as Undertakings or public Sector
Undertakings'.
A public sector enterprise or a public enterprise is one which is owned, managed and
controlled by the Central Government or any State Government or any Local Authority.
state enterprises are organized in one of the following forms,

Public enterprises
(i)Departmental Undertaking : Departmental undertaking is a public enterprise which is
organized, controlled and financed by the government in the same as any other government
department.
(ii)Public Corporation/Enterprises : Public Corporation is a body corporate Created by an Act
of Parliament or Legislature. Its name is notified in the official gazette of the Central or State
Government. It is an artificial person with the flexibility of the private sector and the powers of
the government. It is also known as Statutory Corporation.
(iii)Government Company : According to Section 617 of the Companies Act, 1956,
"A government company is a company in which atleast 51% of the paid up share
capital is held by Central Government, any State Government or Governments, partly
by Central Government and partly by one or more State Governments and includes a
company which is a subsidiary of a company thus defined".
Example State Trading Corporation (STC), Hindustan Machine Tools (HMT), Maruti
Udyog Ltd.

Advantages of public enterprises are,

(i) Independent and Flexible : The public corporation is exist as an autonomous firm.
So, it is independent in working conditions and can take decisions flexibly;
(ii) Easy Formation : It can be formed easily and as is has less legal formalities,
(iii) Increase Economy : Public enterprise helps to increase it firm operation which lead
to heavy production.
Disadvantages of public enterprises are
(i) Bureaucratic Management : The organizations are run by bureaucrats who may-not
have knowledge of running an enterprise or knowledge of the industry trends and
practises.
(ii) Delayed Decisions : Decisions are delayed due to red tapism and bureaucrati
procedures. A file may have to pass through many officials for approval befor a
decision can be taken. By the time a decision is taken, the business environmen might
have undergone considerable changes.
(iii) No Clear-cut price policy: There is no clear cut price policy. Certain organization
follow a cost plus price policy, some administered pricing, a few dual pricing followed
by those adopting association pricing. There is no clarity with regard to the price policy.
Difference between partnership and sole proprietorship:
Sole Proprietorship
Basis
S.N0. Partnership (or) Trade
(1) Membership Partnership is owned by two or
more persons known as partners. Sole-trade business is owned
and controlled by only one
person.

(2) Agreement There is no need of agreement in

To constitute a partnership, an this business.
agreement required ei ther in
writing or oral.

(3) Registration No registration required.

Registration is not compulsory but
non-registration bars it from
taking legal remedies i.e.,
registration has advantages.

(4) Management This business is controlled and

All partners have equal rights and
managed by single owner.
all of them can participate in the
management. They can bind the
business by their acts.

(5) Risk The business risk is shared by all The total risk is shared by the
sole-trader.
the partners in proportion of their
shares.

(6) Secrecy
The secrets of the business are in the There is complete secrecy in the
knowledge of all the partners, so there business because only one person
is fear of leaking them out. manages the business.

Entrepreneurs competition and challenges:

 COMPETITION

Entrepreneurship Competition is a global programme and an online platform, which

supports the implementation of the Sustainable Development Goals (Tracking
information is largely a. matter of networking). Talk to vendors, customers,
consultants and others who do business with companies in and around your field to
find out whether and when new competitors are likely to pop up.Also look in related
product markets. These are the markets whose participants are most likely to
understand your customers' needs. Companies whose products complement each
other in this way are more likely to become competitors than firms in unrelated
industries.
In addition, scan the value chain for your product or service. Companies that occupy
spots on your value chain often understand your business and customers well
enough to become rivals.
You should also suspect firms with related competencies. Carefully scrutinize
companies that have mastered technology similar to yours, even if they appear to
operate in distant sectors. Competencies can also concern nontechnological skills
such as management of retail outlets, new product development or even customer
service.

CHALLENGES OF ENTREPRENEURS

The different challenges of entrepreneurs are,

(1) Cash Flow Management : Cash flow is essential to small business survival, yet
many entrepreneurs struggle to pay the bills (let alone themselves) while they're
waiting for checks to arrive. Part of the problem stems from delayed invoicing,
which is common in the entrepreneurial world.
You perform a job, send an invoice, then get paid (hopefully) 30 days later. In the
meantime, you have to pay everything from your employees or contractors to your
mortgage to your grocery bill. Waiting to get paid can make it difficult to get by and
when a customer doesn't pay, you can risk everything.
(2)Hiring Employees : Do you know who dreads job interviews the most? It's not prospective
candidates it's entrepreneurs. The hiring process can take several days of your time:
reviewing resumes, sitting through interviews, sifting through so many unqualified
candidates to find the diamonds in the rough. Then, you only hope you can offer an
attractive package to get the best people on board and retain them long-term.
(3)Time Management : Time management might be the biggest problem faced by
entrepreneurs, who wear many (and all) hats. If you only had more time, you could
accomplish so much more.
(4)Delegating Tasks : You know you need to delegate or outsource tasks, but it seems every
time you do something gets messed up and you have to redo it anyway

(5)Choosing What to Sell : The challenge You know you could make a mint if you just knew
what products and services to sell. You're just unsure how to pick a niche.
(6)Marketing Strategy : You don't know the best way to market your products and services:
print, online, mobile, advertising, etc. You want to maximize your return on invetment with
efficient, targeted marketing that gets results.